PIZZA HUT, INC. TERRITORY FRANCHISE AGREEMENT

 

Exhibit 10.10

 

 

 

 

                           January 1, 2003

                           PIZZA HUT, INC.

                     TERRITORY FRANCHISE AGREEMENT

 

 

                           TABLE OF CONTENTS

 

                                                             Page

 

ARTICLE I.      FRANCHISE RIGHT GRANTED.........................2

ARTICLE II.     DUTIES OF COMPANY AND TRAINING..................5

ARTICLE III.    MANUAL AND STANDARDS OF OPERATION, QUALITY,

                CLEANLINESS, AND SERVICE........................7

ARTICLE IV.     DUTIES OF OPERATOR, PRETESTING,UNIFORMS,

                INSPECTIONS.....................................8

ARTICLE V.      ERECTION OF BUILDING AND COMMENCEMENT

                OF BUSINESS....................................11

ARTICLE VI.     ADVERTISING AND CO-OPS.........................11

ARTICLE VII.    COMPANY'S MARKS................................15

ARTICLE VIII.   PURCHASE OF EQUIPMENT, SUPPLIES, AND OTHER

                PRODUCTS.......................................16

ARTICLE IX.     FRANCHISE FEES; DEVELOPMENT SCHEDULE...........16

ARTICLE X.      BOOKS, RECORDS, GROSS SALES....................20

ARTICLE XI.     COVENANT REGARDING OTHER BUSINESS INTERESTS....21

ARTICLE XII.    INTERFERENCE WITH EMPLOYMENT RELATIONS.........22

ARTICLE XIII.   USE OF PREMISES................................23

ARTICLE XIV.    SECRET RECIPES AND OTHER SECRET INFORMATION....23

ARTICLE XV.     LEASE APPROVAL.................................23

ARTICLE XVI.    TRANSFER OF INTEREST...........................23

ARTICLE XVII.   PARTNERSHIP AND CORPORATE OPERATORS............26

ARTICLE XVIII.  PERMITTED ASSIGNMENTS..........................27

ARTICLE XIX.    DEFAULT AND TERMINATION........................28

ARTICLE XX.     RIGHTS AND OBLIGATIONS UPON TERMINATION OR

                NONRENEWAL.....................................31

ARTICLE XXI.    RENEWAL........................................32

ARTICLE XXII.   REPAIR AND MAINTENANCE.........................35

ARTICLE XXIII.  ADDITIONAL TRADEMARKS..........................35

ARTICLE XXIV.   INSURANCE......................................35

ARTICLE XXV.    INDEMNIFICATION................................36

ARTICLE XXVI.   RELATIONSHIP OF PARTIES........................36

ARTICLE XXVII.  EXECUTION, INTERPRETATION, NOTICES.............37

ARTICLE XXVIII. REQUESTS FOR WAIVERS AND CONSENTS..............39

ARTICLE XXIX.   RELEASE........................................39

 

 

 

                                2003

                         PIZZA HUT, INC.

                      FRANCHISE AGREEMENT

                       (1990 REPLACEMENT)

 

        THIS AGREEMENT made as of this 1st day of January, 2003, by and

between PIZZA HUT, INC., a California corporation, with its principal

place of business at Dallas, Texas (hereinafter called "Company"), and

American Pizza Partners, L.P. (hereinafter called "Operator" and

defined in Article XXVII.C.):

 

                             WITNESSETH:

 

        WHEREAS, Company is the owner of a pizza distribution business

operated by it and by its licensees throughout the United States and

in certain foreign countries under the name and mark "Pizza Hut";

        WHEREAS, Company has developed and continues to develop and owns

a system for merchandising pizza and certain related foods, which

system includes distinctive signs, food recipes, uniforms, and various

trade secrets and other confidential information, and in some cases

also includes architectural designs, equipment specifications, layout

plans, inventory and record-keeping techniques, and marketing

techniques (hereinafter called "System");

        WHEREAS, Company developed the System through the expenditure of

time, money, and effort and has maintained high standards of quality

and service for operations in the System, as a result of which the

System has acquired valuable goodwill and a favorable reputation;

        WHEREAS, Company identifies the System by certain trademarks,

trade names, service marks, symbols, slogans, emblems, logos, designs,

and other indicia of origin (hereinafter called "Company's Marks"),

including the trademark, trade name, and service mark "Pizza Hut" and

such other marks as may be designated by Company in writing as being

authorized for use in the System, all of Company's Marks being owned

by Company and used by Company and its licensees to identify for the

public the source of the services rendered in accordance with the

System and the high standards of quality attendant thereto;

        WHEREAS, the parties hereto have previously been parties to a

1990 Pizza Hut, Inc. Franchise Agreement (the "1990 Franchise

Agreement") governing the System business conducted by Operator within

the same geographical territory as hereafter specified;

        WHEREAS, the parties hereto mutually desire to supersede the 1990

Franchise Agreement and any amendments thereto, with this Franchise

Agreement in order to satisfactorily redefine their respective rights

and obligations;

        WHEREAS, Operator desires to continue to enjoy the benefits of

operating under the System and using Company's Marks, and to continue

to be licensed to operate one or more facilities within the System in

strict accordance with the standards and specifications established by

Company; and

        WHEREAS, Company is willing to grant Operator a license under

Company's Marks and the System, subject to Operator's strict

compliance with the terms and conditions of this Agreement;

        NOW, THEREFORE, the parties hereto, in consideration of the

mutual agreements herein contained and promises herein expressed and

for other good and valuable consideration, receipt of which is hereby

acknowledged, do hereby agree as follows:

 

                           ARTICLE I.

 

                     FRANCHISE RIGHT GRANTED

 

        A.  1.    Company hereby grants to Operator, for a period of

thirty (30) years beginning on January 1, 2003, subject to renewal as

provided in Article XXI., the right and license, and Operator hereby

undertakes the obligation, to operate the business described below

under the mark "Pizza Hut" and such other of Company's Marks as may be

designated by Company, and to operate such business solely in

accordance with Company's System, and only at locations in the

following geographical territory (hereinafter called the "Territory"):

 

Counties of Big Horn, Carbon, Dawson, Fallon, Richland,

Roosevelt, Sheridan and Valley, Montana

 

        The business in which Operator is licensed to engage within the

Territory consists of the operation of "System Restaurants." For

purposes of this Agreement, "System Restaurants" comprise only the

following concepts within the System: (a) Pizza Hut Restaurants

("Pizza Hut Restaurants") - (Company's original concept) from which

Pizza Hut pizza (and other System-authorized food and beverage items)

are sold for dine in (on-premises) and carryout (off-premises)

consumption; and may be delivered for off-premises consumption; in

order to be a Pizza Hut Restaurant, a restaurant must have either at

least 30 seats or at least 15% of its sales attributable to dine-in

service; (b) Delivery Restaurants ("Delivery Restaurants") - from

which Pizza Hut pizza (and other System-authorized food and beverage

items) are delivered for off-premises consumption; (c)

Delivery/Carryout restaurants ("Delco Restaurants") - from which Pizza

Hut pizza (and other System-authorized food and beverage items) are

sold for carryout and/or delivered, all for off-premises consumption;

and (d) Express Restaurants ("Express Restaurants") - from which a

limited menu of Pizza Hut pizza (and other System-authorized food and

beverage items) are sold for immediate on- or off-premises consumption

(throughout this Agreement, the phrase "System Restaurant Concepts"

refers to the four (4) concepts, described above, that jointly

constitute "System Restaurants"). Company reserves the right (in its

reasonable discretion and consistent with the foregoing definitions

and limitations) to clarify the portions of the entire System that

fall within the term "System Restaurants," and to distinguish (and set

differing standards for) the various System Restaurant Concepts.

 

        2.  With respect to any System Restaurants within the Territory

which (i) are subject to the 1990 Franchise Agreement as of the date

hereof, or (ii) were at any time subject to the 1990 Franchise

Agreement and subsequently became subject to a Pizza Hut New

Construction Franchise Agreement ("NCFA") between Company and

Operator, such System Restaurants shall, effective as of January 1,

2003, be subject to the provisions of this Agreement.  The 1990

Franchise Agreement and the NCFAs relating to System Restaurants as

described in clause (ii) of the preceding sentence shall be superseded

in all respects by this Agreement.  The foregoing shall not release

Operator or Company from the following ("Surviving Claims"): (i)  any

liability for monetary obligations existing prior to January 1, 2003,

including obligations arising pursuant to Article VI or Article IX of

the 1990 Franchise Agreement  or (ii) any indemnification liability

under Article XXV of the 1990 Franchise Agreement based upon facts or

circumstances existing prior to January 1, 2003.

 

        3.  Company and Operator may have entered into certain

amendments, supplements or side agreements relating to the 1990

Franchise Agreement or one or more NCFAs which have been merged into

this Agreement (collectively, the "Side Agreements").  Company and

Operator intend that certain or all of the Side Agreements shall

continue in full force and effect after the execution and delivery of

this Agreement.  To the extent that the provisions of the Side

Agreements are in direct conflict with the provisions of this

Agreement, the provisions of the Side Agreements shall control.  All

of the Side Agreements which Company and Operator intend to remain in

full force and effect are identified on Schedule D.

 

        B.  During the term of this Agreement, Company shall not

establish nor license another to establish within the Territory,

except under the conditions set forth in Articles I.D. or IX., a

System Restaurant. Operator acknowledges and agrees that, subject only

to the preceding sentence and to Article I.D., Company retains, among

others, the right to sell any product under the Company's Marks or any

other name or mark to any purchaser within the Territory.

 

        C.  Operator shall conduct its System Restaurant business only

at locations within the Territory. The establishment of Operator's

System Restaurants shall be in accordance with this Agreement and the

terms and conditions of this Agreement shall automatically extend to

and govern the respective rights, duties, and obligations of Company

and Operator as to each such location, including the payment to

Company by Operator of an initial franchise fee and monthly service

fee for each System Restaurant as provided in Article IX.A., the same

as if a separate franchise agreement had been executed for each such

System Restaurant. No System Restaurant of Operator shall be

established at a location within a two (2) mile radius of any then-

existing Pizza Hut Restaurant without the Company's prior written

consent.

 

        D.  1.    During the term of this Agreement, Company may develop

one or more new methods of distributing pizza, pasta, or other Italian

food items similar to Italian food items approved by Company for sale

in System Restaurants using Company's Marks (hereinafter called "New

Concepts"), which may or may not involve restaurants. Company may, at

its sole discretion, permit Operator to participate in testing a New

Concept. If the New Concept cannot (in Company's reasonable judgment)

be exploited by a majority of Company's franchisees in the United

States due to legal or institutional barriers, Company may

nevertheless implement (or license others to implement) the New

Concept, provided that, if Operator is in "good standing" (as defined

below), Company must pay Operator an amount equal to two and one-half

percent (2.5%) of the gross sales of the New Concept within the

Territory. In all other circumstances, the Company may implement the

New Concept only pursuant to Article I. D. 2.

 

        2.  If the New Concept can (in Company's reasonable judgment)

be exploited by a majority of Company's franchisees in the United

States, and if the testing demonstrates an acceptable unit return

(which is defined to be a fifteen percent (15%) cash-on-cash return on

the capital investment including the initial fee for the New Concept,

and treating the ongoing royalty for the New Concept as an expense,

but excluding the cost of financing), and if Operator is in "good

standing" (as defined in Article I. D. 3.), the New Concept will be

released to Operator (whether or not Operator participated in the

test) subject to payment of a $25,000 initial fee and ongoing royalty

for the New Concept (the ongoing royalty shall not exceed the fee

provided in this Agreement). The New Concept when released becomes a

System Restaurant for purposes of this Agreement and will be governed

by this Agreement.

 

        a.  Following the release of a New Concept to Operator and

other franchisees within the System, Company shall publish to the

System an evaluation of the total development potential for the New

Concept. Once the System has developed five percent (5%) of the

potential total, Company can at any time mandate to Operator and other

franchisees within the System development of the New Concept. At the

time of the mandate, Company will notify Operator of Company's

projection of the total development potential of the New Concept

within the Territory. If Operator desires to implement the New

Concept, Operator must submit to Company within thirty (30) days after

Company's mandate, Operator's proposed five (5)-year schedule for

development of the New Concept in the Territory. Within thirty (30)

days thereafter, Company shall either accept Operator's proposed

development schedule, or counterpropose a different five (5)-year

development schedule. Operator shall have fifteen (15) days from the

date Company accepts Operator's proposed development schedule or

counterproposes its own development schedule within which to elect in

writing to undertake to establish the New Concept according to the

terms of the development schedule.

 

        b.  If Operator fails to make that election or fails to meet

the development schedule, then Company, to the exclusion of Operator,

may at any time itself develop the New Concept within the Territory,

but may not license the New Concept or a facility in which it is

implemented until the third anniversary of the opening of each such

outlet featuring the New Concept. After the third anniversary, Company

may license the outlet to another but only if Company first offers to

Operator (if Operator is then in good standing as defined in Paragraph

I. D. 3.) the right of first refusal, for thirty (30) days, to acquire

the assets of the outlet at the price and terms offered by the third

party (or the cash equivalent of noncash consideration offered by the

third party), together with the franchise of the right to operate it

pursuant to this Agreement.

 

        c.  In establishing a development schedule for a New Concept,

Company shall take into account criteria including potential sales

volume, market demographics, saturation analysis, diversion of sales

from Operator's other System Restaurants, and physical and geographic

characteristics of areas in the Territory.

 

        3.  Operator is in "good standing" if there is no outstanding

notice of Operator's default under this Agreement that has not been

cured. If Operator is not in good standing, Company will notify

Operator to that effect, and will tell Operator how to return to good

standing; upon Operator's return to good standing, Company will (as

appropriate) begin paying the passover royalty to Operator or release

the New Concept to Operator.

 

        4.  Company may periodically develop or offer concepts

primarily for use in connection with and integration within a System

Restaurant (a "Multi-Brand Concept") and prepare license agreements

("YUM! Brands Multi-Brand License Agreements") for use in connection

therewith.  If any Multi-Brand Concept qualifies as a New Concept,

then until January 1, 2011:  (i) the service fee rate for such New

Concept shall not exceed the applicable Service Fee rate, and (ii) the

advertising fee rates shall not exceed the advertising fee rates

required under Articles VI.A.9 and VI.C below.  Effective January 2,

2011, such rates for a New Concept subject to the preceding sentence

shall be as described in the applicable then-current YUM! Brands

Multi-Brand License Agreement, except that with respect to pizza items

sold in connection with the New Concept which is a Multi-Brand

Concept, any service fee rate shall in no event exceed the applicable

Service Fee rate and any advertising fee rates shall not exceed the

advertising fee rates required under Articles VI.A.9 and VI.C below. 

Nothing contained in this Article I.D.4 shall relieve or discharge PHI

from its obligations pursuant to Article I.B, Article I.D.1 and

Article I.D.2 above, including without limitation PHI's obligation to

release a New Concept to Operator as therein provided, even if the

Multi-Brand Concept is licensed under a separate agreement.

 

                        ARTICLE II.

 

             DUTIES OF COMPANY AND TRAINING

 

        Company will assist Operator in the proper operation of the

System Restaurant business in the following manner:

 

        A.  At the request of Operator, Company will help Operator

select suitable locations by furnishing established criteria for use

by Operator in evaluating and selecting locations, including location

inspections as reasonably determined by Company. Final approval of

locations must be obtained in writing from Company, if Company so

advises or has so advised Operator. If Operator intends to develop a

System Restaurant within the Territory at a location within two (2)

miles of the border of the Territory, Operator shall not proceed with

such development without first having obtained the written consent of

Company. Prior to developing a Company-owned System Restaurant at a

location outside of the Territory but within two (2) miles of the

border of the Territory, Company shall take into account criteria

including potential sales volume, market demographics, saturation

analysis, diversion of sales from Operator's other System Restaurants,

and physical and geographical characteristics; provided, however, that

no notice to or consent of Operator shall be required for such

development.

 

        B.  1.    Company will offer training programs for employees of

each of Operator's System Restaurant Concepts at locations and at

times selected by Company. Company will bear the costs of providing

training programs, including the overhead costs of training, staff

salaries, materials, and all technical training tools. Operator shall

pay all traveling, living, compensation, and other expenses incurred

by Operator and/or Operator's employees in connection with attendance

at training programs. The operation and manner of conducting such

programs shall be in the sole control of Company.

 

        2.  Operator will not allow any System Restaurant operated

pursuant to this Agreement to be managed by any person who has not

either 1) attended and successfully completed the management training

course designated by Company for the System Restaurant Concept at

issue, or 2) recently had a minimum of three (3) months experience

managing a System Restaurant operating within the same System

Restaurant Concept. In the event a restaurant manager resigns or is

terminated, Operator will not be in default of such requirement if the

successor restaurant manager commences the required training course

within ninety (90) days of first assuming the duties of a restaurant

manager and successfully completes said course. The required training

course conducted at Company's facilities will not extend beyond two

(2) weeks and will be structured so as to provide practical training

in the implementation and operation of the applicable System

Restaurant Concept(s).

 

        3.  If Operator has or implements a management training program

and has utilized Company's management training program for one (1)

year, Operator may request in writing that Company approve Operator's

management training program as an alternate method of complying with

the requirement of Article II.B.2. In such event, if Operator

satisfies Company that Operator's program is at least the equivalent of

Company's program, Company will certify such program. Company shall

have the right to continually review Operator's management training

program and to revoke the certification of such program whenever it

fails (in Company's sole discretion) to satisfy the equivalency

standard set forth above, as it may change from time to time.

 

        C.  Company will provide at no cost to Operator, upon

Operator's thirty (30) day advance request or as Company may deem

appropriate, a qualified Company representative at Operator's initial

location within each System Restaurant Concept for the first three (3)

days of operation to train personnel and otherwise assist in the

opening of the establishment.

 

        D.  Company will make available to Operator from time to time

Company's advice and assistance in the proper operation of System

Restaurants as Operator may reasonably request.

 

        E.  Company will provide on loan, at no cost to Operator, one

(1) set of the appropriate portion(s) of Company's detailed Manual

(which is more fully described in Article III.) for each System

Restaurant of Operator. The portion(s) of the Manual to be provided to

Operator may vary, depending upon the System Restaurant Concept

involved. Additional sets may be obtained on loan from Company for a

reasonable fee to be set by Company.

 

                           ARTICLE III.

 

                MANUAL AND STANDARDS OF OPERATION,

                QUALITY, CLEANLINESS, AND SERVICE

 

        A.  The Manual, and all portions of and all copies of the

Manual, shall remain the property of Company and shall be returned to

Company upon termination or nonrenewal of this Agreement.

 

        B.  1.  In the Manual, among other publications, Company will

promulgate standards of operation for each of the System Restaurant

Concepts, and standards of quality, cleanliness, and service for all

food, beverages, furnishings, interior and exterior decor, supplies,

fixtures, and equipment used in connection with each System Restaurant

Concept. Operator shall at all times conform to such standards.

Company may, from time to time, change the standards, in which case

Operator shall comply with any new or changed standard.

 

        2.  No new or changed standard calling for expenditures by

Operator which Company considers to be substantial will be required by

Company unless the proposed standard is pretested in a reasonably

representative sample of System Restaurants, constituting at least

five percent (5%) of the System Restaurants in the United States

operating within the same System Restaurant Concept(s), and the

results of such pretesting demonstrate customer acceptance and

operational feasibility. Company will also consider the financial

implications in connection with such proposed standard. The System

Restaurants selected to participate in the pretest program will be

reasonably representative of the entire System Restaurant Concept with

respect to sales volume, market demographics, and physical and

geographical characteristics, and may consist of a combination of

Company-owned and franchisee-owned System Restaurants, or all Company-

owned or all franchisee-owned System Restaurants. Operator may be

requested to participate, but such participation will be voluntary.

Operator shall have a minimum of ninety (90) days after receipt of

written notice in which to fully implement such new standard or

changed standard, but in no event will Operator be required to

implement any such new standard or changed standard at a faster

percentage rate than being accomplished by Company-owned System

Restaurants in the United States.

 

        C.  Operator shall Remodel, Rebuild, Relocate, Reimage and

Refurbish (as such terms are defined on Schedule B hereto) its Pizza

Hut Restaurants in accordance with the provisions of Schedule B. 

 

        D.  The Manual is a highly confidential document which contains

certain of Company's trade secrets, and Operator shall never reveal,

and shall take all reasonable precautions to assure that its employees

shall never reveal, any of the contents of the Manual or any other

publication provided by Company, except as is necessary to the

operation of Operator's System Restaurants.

 

 

                           ARTICLE IV.

 

DUTIES OF OPERATOR, PRETESTING, UNIFORMS, INSPECTIONS

 

        A.  In order to preserve and promote the value and goodwill of

Company's Marks and the System:

 

        1.  Operator shall conduct its business consistent with the

standards promulgated by Company in the Manual and other publications

and in strict compliance with the terms of this Agreement.

 

        2.  Operator shall not manufacture, advertise for sale, sell,

or give away any product unless such product has been approved and not

thereafter disapproved in writing by Company. All approved products

shall be distributed under the specific name designated by Company.

Operator shall establish all menu prices in its sole discretion. If

Operator has a suggestion for a new product, or for a change to

existing product specifications, or desires to participate in a test

market program, Operator shall so advise Company in writing. Company

will consider Operator's suggestions and/or requests, and advise

Operator of its response within a reasonable time.

 

        3.  a.    Operator shall offer for sale in its System

Restaurants only those food products which Company designates as

"standard" or which Company has made available as a "regionalized"

menu item or has specifically approved pursuant to Article IV.A.2. No

standard product will be removed from the menu unless Operator is so

instructed by Company.

 

        Operator shall, upon receipt of notice from Company, add a

standard product to its menu according to the instructions contained

in the notice. Operator shall have a minimum of ninety (90) days after

receipt of written notice in which to fully implement any such change

and in no event shall Operator be required to implement any such

change at a faster percentage rate than that being accomplished by

comparable Company-owned System Restaurants within the same general

geographic market area, if any. Operator shall cease selling any

previously approved product within thirty (30) days after receipt of

notice that the product is no longer approved.

 

        b.  Operator will not be required to implement any new standard

product unless the proposed standard product is pretested in a

reasonably representative sample of System Restaurants, constituting

at least five percent (5%) of the System Restaurants in the United

States in the same System Restaurant Concept(s), and the results of

such pretesting demonstrate customer acceptance and operational

feasibility. For those proposed standard products which require a

capital investment in equipment, the pretest results must also

demonstrate that a majority of System Restaurants participating in the

pretest realized an acceptable unit return (which is defined to be at

least a ten percent (10%) cash-on-cash return on the capital

investment and ongoing royalty, but excluding the cost of financing).

The System Restaurants selected to participate in the pretest program

will be reasonably representative of the entire System Restaurant

Concept with respect to sales volume, market demographics, and

physical and geographical characteristics. Operator may be requested

to participate, but such participation shall be voluntary. The

restaurants selected to participate may consist of a combination of

Company-owned and franchisee-owned System Restaurants, or all Company-

owned or all franchisee-owned System Restaurants.

 

        c.  Any food products approved for System Restaurants as of

January 1, 2003 shall not be subject to the requirements of Article

IV.A.3.b.

 

        4.  Company shall have the right, in the Manual or in other

publications, to prescribe one or more menu formats to be utilized in

each System Restaurant Concept. The menu format(s) may include, in

Company's discretion, requirements concerning organization, graphics,

product descriptions, illustrations, and any other matters (except

prices) related to the menu, whether or not similar to those listed.

In Company's discretion, the menu format(s) may vary depending upon

region, market size, or other factors. Company may change the menu

format(s) from time to time, in which case Operator will be given a

reasonable time (not longer than six (6) months) to discontinue use of

the old menu format(s) and implement use of the new menu format(s).

The content, as opposed to the format, of menus shall be determined in

accordance with Articles IV.A.2. and IV.A.3.

 

        5.  The food products sold by Operator shall be of the highest

quality, and the ingredients, composition, specifications, and

preparation of such food products shall comply with the instructions

and recipes provided by Company or contained in Company's Manual, and

with the further requirements of Company as they are communicated to

Operator from time to time.

 

        6.  Operator shall not sell or distribute any food product or

ingredient except as a complete and fully processed food product, or

as otherwise approved in writing by Company.

 

        7.  Operator shall operate each of its System Restaurants as a

clean, orderly, legal, and respectable place of business in accordance

with Company's business standards and merchandising policies and shall

comply with all applicable ordinances, laws, and statutes governing

the operation of such premises, including all food and drug laws and

regulations.

 

        8.  Operator shall maintain a suitable sign at, on, or near the

front of the premises from which each of its System Restaurants is

operated, identifying the premises only as "Pizza Hut." Such sign

shall conform in all respects to Company's requirements except to the

extent prohibited by local legal restrictions.

 

        9.  Operator shall cause all employees, while working in System

Restaurants, to: (i) wear uniforms of such color, design, and other

specifications as Company may designate from time to time, and (ii)

present a neat and clean appearance. In the event the type of uniform

utilized by Operator is deleted from the list of approved uniforms,

Operator shall have six (6) months from receipt of written notice of

such deletion to discontinue use of its existing inventory of uniforms

and implement an approved type of uniform.

 

        10. Operator shall not permit any vending or game machines or

any other items to be installed or maintained on the premises without

Company's prior written approval, except that Company hereby consents

to the installation of cigarette and newspaper vending machines, coin

telephones, and non-video jukeboxes.

 

        11. Operator shall implement not later than January 1, 2006,

and thereafter shall utilize, resident point-of-sales and backoffice

systems ("Technology Systems") which shall be compatible with the data

reporting systems used by Company. Such Technology Systems shall have

functionality  which will permit the performance of the tasks set

forth on Schedule C hereto.

 

        B.  Company may require the operation of one or more System

Restaurant Concepts for a specified minimum number of hours per week,

by a statement to that effect in the Manual. If Operator seeks (in

writing) Company's consent to operate one or more specific System

Restaurants a lesser number of hours per week, Company will consider

such factors as the System Restaurant's sales volume, profitability,

location, exposure to criminal activity, the nature of the concept

involved, and competitive activity in the vicinity. Nothing herein

shall prevent Operator from temporarily closing one or more System

Restaurant(s) without Company's consent on any five (5) holidays of

Operator's choosing per year or in the event of natural disaster,

severe and unusual weather conditions, or grave emergency beyond

Operator's control.

 

        C.  Company's authorized representatives shall have the right

to enter upon the premises of Operator's System Restaurants at any

reasonable time for the purpose of examining same, conferring with

Operator's employees, inspecting and checking operations, food,

beverages, furnishings, interior and exterior decor, supplies,

fixtures, and equipment, and determining whether the business is being

conducted in accordance with Company's standards and the terms of this

Agreement. Operator will receive after each inspection a written

inspection report. In the event any such inspection report indicates

any deficiency or unsatisfactory condition with respect to any matter

on said inspection report, Operator shall, within forty-eight (48)

hours of Operator's receipt of the report or such other time period as

Company in its sole discretion may provide, correct or repair such

deficiency or unsatisfactory condition if it is correctable or

repairable within such period of time, and, if not, shall within such

period of time commence such correction or repair and thereafter

diligently pursue the same to completion. In the event of failure of

Operator to comply with the foregoing obligations to correct and

repair, Company shall have the right, without being guilty of trespass

or other tort, to forthwith make or cause to be made such corrections

or repairs, and the expenses thereof, including board, lodging, wages,

and transportation of Company personnel, if utilized in Company's sole

discretion, shall be paid by Operator upon billing by Company. The

foregoing shall be in addition to any other rights or remedies Company

may have.

 

 

                           ARTICLE V.

 

ERECTION OF BUILDING AND COMMENCEMENT OF BUSINESS

 

        A.  If required by applicable law, Operator shall promptly file

and publish a certificate of doing business under an assumed or

fictitious name and shall furnish a certified copy of said certificate

to Company promptly thereafter.

 

        B.  Operator shall obtain all necessary governmental permits

and licenses prior to beginning the erection of any System Restaurant

building or buildings. Operator shall fully complete said construction

within a reasonable time thereafter. Operator shall commence operation

of each System Restaurant no later than thirty (30) days following

completion of the building and improvements and shall give Company ten

(10) days written notice prior to commencing operations. In no event

shall Operator construct or remodel the interior or exterior of any

System Restaurant or make any improvements which vary from the then-

current standards, plans, and specifications approved by Company,

without first obtaining the prior written approval of Company.

 

        C.  Operator shall obtain all municipal and state licenses

necessary to operate each of Operator's System Restaurants prior to

commencement of business at the System Restaurant and shall maintain

all licenses during the term of this Agreement.

 

 

                           ARTICLE VI.

 

ADVERTISING AND CO-OPS

 

        A.  1.  Company has and will continue to define certain

marketing areas in which Co-operative Advertising Associations of

System Restaurants ("Co-ops") are to be established. Each Co-op shall

function for the purpose of maximizing the efficient utilization of

local advertising media. On the basis of established advertising

criteria such as Arbitron, A. C. Nielsen, or other comparable

standard, Company has or will, for each System Restaurant operated by

Operator under this Agreement, specify which Co-op, or in some

instances more than one Co-op, each System Restaurant shall join. Each

System Restaurant operated by Operator shall participate in the Co-op

or Co-ops designated by Company. On the basis of established

advertising criteria such as Arbitron, A. C. Nielsen, or other

comparable standard, Company may subsequently change such designation

for one or more of Operator's System Restaurants and require such

System Restaurants to participate in a new and/or different Co-op or

Co-ops. If requested, Company will assist in the establishment of such

Co-op or otherwise assist in fulfilling the intent of this Article

VI.A.1. In the event an impasse occurs owing to the inability or

failure of the Co-op members to resolve within forty-five (45) days

any issue affecting the establishment or effective functioning of an

individual Co-op, any such issue shall, upon request of a member of

said Co-op or the Advertising Committee of Company and I.P.H.F.H.A.,

Inc. (hereinafter called the "Advertising Committee"), be submitted to

the Advertising Committee for consideration, and its resolution of

such issue shall be final and binding on all members of the Co-op.

 

        2.  For each of Operator's System Restaurants, Operator shall

make monthly contributions to the Treasurer of each Co-op of which the

Restaurant is a member, in accordance with this provision.

 

        Except as provided in Article VI.A.9., Company will require every

Operator of System Restaurants to belong, and contribute, to a local

co-op.

 

        a.  For those System Restaurants which are members of only one

Co-op, Operator shall contribute an amount equal to one and three-

fourths percent (1-3/4%) of the prior monthly gross sales (as defined

in Article X.B.) of each such System Restaurant.  The contribution

rate for any Co-op may be increased at any time, but only upon

approval of the members of the Co-op in accordance with its bylaws or

operating procedures.

 

        b.  For those System Restaurants which are members of more than

one Co-op, Operator shall make a total contribution for each such

restaurant pursuant to Article VI.A.2.a. Company will advise Operator

as to what portion of each such System Restaurant's total contribution

shall be made to each Co-op; the apportionment shall be based upon the

percentage of broadcast signals received in the trade area of the

System Restaurant from the stations in each Co-op's market area. Upon

notice to Operator, Company may subsequently alter its apportionment

instructions. If Operator's System Restaurants have been assigned to

more than one Co-op and the Co-ops have different contribution rates,

the contributions to each Co-op shall be adjusted proportionately to

reflect the different contribution rates.

 

        3.  If Company owns a System Restaurant within a defined

marketing area of any such Co-op or Co-ops, it will be a participating

member and contribute to said Co-op or Co-ops for each such Company-

owned System Restaurant under the same terms as specified in Article

VI.A.2.a. and b. (subject, however, to the limitations set forth in

Article VI.F.).

 

        4.  The amount so contributed to the Co-op under Article

VI.A.2. and 3. shall be used only to purchase broadcast media

advertising; provided, however, that a Co-op may, upon consent of the

members of the Co-op owning seventy-five percent (75%) of the System

Restaurants within the Co-op, seek consent of the Advertising

Committee to spend any part of such funds for other types of

externally measurable advertising by demonstrating that a more

efficient method of accomplishing the purposes for which the Co-op was

established is available in the Co-op's marketing area. Each Co-op

shall retain the services of a professional advertising agency and

shall utilize said agency in purchasing its broadcast media

advertising.

 

        5.  In those instances where expenditure of all required Co-op

contributions would cause the advertising level to exceed the

reasonable level of effective advertising, the contributions required

by Article VI.A.2. and 3. may be reduced to a lesser amount upon

unanimous approval of all members of the Co-op and unanimous consent

of the Advertising Committee.

 

        6.  Company shall have the right, at reasonable times, to have

its authorized representatives review the business records of a Co-op

and, at Company's discretion, to conduct an audit of the Co-op's

books, records, and accounts.

 

        7.  All Co-op advertising shall be prepared, reviewed, and used

in accordance with the requirements of Article VI.E. and such

provision shall apply to all Co-op advertising and promotion.

 

        8.  Company reserves the right to establish general standards

concerning the operation of all Co-ops, advertising agencies retained

by Co-ops, and advertising programs conducted by Co-ops. No such

standards shall be promulgated without the approval of the Advertising

Committee, and all standards shall be uniformly applied. In no event

shall Operator's contribution, required in Article VI.A.2., be

increased as a result of such standards without Operator's consent. If

Company establishes a one store-one vote majority rules standard for

voting on all matters other than those (a) increasing, redirecting or

decreasing Co-op dues or contributions or (b) implementing any further

bylaw amendments, Operator shall exercise Operator's voting power in

each Co-op of which Operator is a member to implement that standard.

Any inconsistent provisions of this Agreement shall be deemed amended

to reflect the implementation of the one-store one-vote majority rules

standard in respect to each Co-op so acting.

 

        9.  For each of Operator's System Restaurants for which Company

does not designate a Co-op pursuant to Article VI.A.1., or whenever a

Co-op is not functioning, Operator shall nevertheless spend monthly

one and three-fourths percent (1-3/4%) of the prior monthly gross

sales of each such System Restaurant for broadcast media advertising

within each such System Restaurant's marketing area. Operator may seek

consent of the Advertising Committee to spend any part of such funds

for other types of externally measurable advertising by demonstrating

that a more efficient method is available within such System

Restaurant's marketing area.

 

        10. The monthly contributions and/or expenditures required by

Article VI.A.2., 3., and 9 shall be made on or before the twentieth

(20) day of each month based upon the prior monthly gross sales of

each System Restaurant.

 

        B.  Operator shall be a member of I.P.H.F.H.A., Inc. (sometimes

known informally as the International Pizza Hut Franchise Holders

Association but hereinafter referred to as "IPHFHA") during the term

of this Agreement. Operator hereby agrees to abide by the

Constitution, Bylaws, Rules, and Regulations of IPHFHA as the same

may, from time to time, be amended, and specifically agrees to pay all

charges and assessments appropriately made by IPHFHA upon Operator. At

any time that IPHFHA holds a vote concerning the dues and assessments

to be paid by its members, Operator shall exercise all of Operator's

voting power in IPHFHA to implement a dues rate not less than two and

one-half percent (2-1/2%) of the prior month's gross sales from each

System Restaurant for contribution to the national advertising fund

administered by the Advertising Committee.

 

        C.  During the period the Advertising Committee Agreement

between Company and IPHFHA is in force, Operator shall pay an amount

equal to two and one-half percent (2-1/2%) of the prior monthly gross

sales (as defined in Article X.B.) of each of Operator's System

Restaurants to IPHFHA, and Company shall require every new Operator or

Operator of a newly franchised territory for System Restaurants to pay

two and one-half percent (2-1/2%) of that Operator's System

Restaurant's prior monthly gross sales, for contribution to the

national advertising fund administered by the Advertising Committee.

The two and one-half percent (2-1/2%) payment incorporates, and is not

intended to be in addition to, IPHFHA dues described in Article VI.B.

above.  However, Operator shall be obligated to pay the two and one-

half percent (2-1/2%) to IPHFHA for contribution to the national

advertising fund administered by the Advertising Committee even if the

dues rate actually imposed by IPHFHA is less than two and one-half

percent (2-1/2%).  If, at any time and for any reason, the Advertising

Committee Agreement is no longer in force, Operator shall pay that

amount directly to Company for purposes of national advertising of the

System.

 

        D.  Notwithstanding anything contained in this Article VI to

the contrary, in no event shall Operator's aggregate advertising fee

rates for national and cooperative advertising be required to exceed

four and one-fourth percent (4-1/4%). The first two and one-half

percentage points of such aggregate advertising fees shall be applied

toward payment of Operator's national advertising obligations

(including IPHFHA dues, as referred to in Article VI.C), and the

balance of such advertising fees shall be applied toward payment of

Operator's cooperative advertising obligations. 

 

        E.  No design, advertisement, sign, or form of publicity,

including form, color, number, location, and size, shall be used by

Operator unless the same shall have been first submitted to Company

and approved in writing (except with respect to prices). Any request

by Operator for such approval shall be addressed to Company's

Advertising Department and Company shall respond within thirty (30)

days. Whenever Operator elects to utilize, in the form supplied,

advertising supplied by Company or a promotional item specifically

approved by Company, no further approval for use of such material is

required. Upon written notice from Company, Operator shall discontinue

and/or remove any objectionable advertising materials. If said

materials are not discontinued and/or removed within five (5) days

after notice, Company, or its authorized agents, may, at any time,

enter upon Operator's premises, or elsewhere, and remove any

objectionable signs or advertising media and may keep or destroy such

signs or other media without paying therefor, and without being guilty

of trespass or other tort.

 

        F.  Company is not, under any circumstances (notwithstanding

any other provision of this Agreement or of the Advertising Committee

Agreement), obligated to contribute to any national or local

advertising fund, program, co-op, or other organization any

advertising fees or contributions for Company-operated System

Restaurants at a net effective rate higher than the aggregate net

effective rate at which Operator and all other members of IPHFHA

contribute to that fund, program, co-op, or other organization,

measured as a percentage of gross sales of the involved restaurants.

 

 

                           ARTICLE VII.

 

COMPANY'S MARKS

 

        A.  The license herein granted Operator to use Company's Marks

and the privileges herein granted are applicable with respect to

Operator's System Restaurants located in the Territory and not

elsewhere.

 

        B.  Operator shall not license or attempt to license any other

person or firm to use Company's Marks. Operator may use Company's

Marks only to identify Operator's licensed System Restaurants and

products specifically designated by Company in writing. Operator may

not sell any products using Company's Marks outside the Territory.

 

        C.  Operator shall not interfere in any manner with, or attempt

to prohibit, the use of Company's Marks by any other franchisee of

Company.

 

        D.  Operator shall immediately notify Company in writing of any

third party infringing upon Company's Marks or challenging Operator's

use of any marks licensed herein, and Company will diligently protect

such marks.

 

        E.  It is specifically agreed that all goodwill arising from

Operator's use of Company's Marks and System inures to Company.

 

        F.  All materials, including, without limitation, place mats,

menus, matchbook covers, and order books, used in Operator's System

Restaurants shall bear Company's Marks as prescribed by Company, and

such use shall indicate that Company's Marks are registered marks.

 

        G.  Operator shall exercise caution when utilizing Company's

Marks to ensure that said Marks are not jeopardized in any manner, and

Operator agrees to indemnify Company for any damage or expense

occasioned by Operator's improper use of said Marks.

 

        H.  Any location lease signed by Operator shall expressly

provide Operator, or Company as Operator's agent, with the right, upon

the termination or nonrenewal of either this Agreement or such lease,

to remove all identifying architectural superstructure and

characteristics from the building as Company may direct in order to

effectively distinguish the same from Company's proprietary building

design.

 

 

                          ARTICLE VIII.

 

PURCHASE OF EQUIPMENT, SUPPLIES, AND OTHER PRODUCTS

 

        A.  1.    Operator shall obtain all equipment, supplies, and

other products and materials required for the operation of its System

Restaurants solely from suppliers (including manufacturers,

distributors, and other sources) who demonstrate, to the continuing

reasonable satisfaction of Company, the ability to meet Company's

then-current reasonable standards and specifications for such items;

who possess adequate quality controls and capacity to supply

Operator's needs promptly and reliably; and who have been approved in

writing by Company and not thereafter disapproved. If Operator desires

to purchase any items from an unapproved supplier, Operator shall

submit to Company a written request for such approval, or shall

request the supplier itself to do so. Company shall have the right to

require that its representatives be permitted to inspect the

supplier's facilities, and that samples from the supplier be

delivered, at Company's option, either to Company or to an

independent, certified laboratory designated by Company for testing.

Company reserves the right, at its option, to reinspect the facilities

and products of any such approved supplier at any time and to revoke

its approval upon the supplier's failure to continue to meet any of

Company's criteria. Nothing in the foregoing shall require Company to

approve any supplier.

 

        2.  No item of merchandise, furnishings, interior and exterior

decor items, supplies, fixtures, equipment, or utensils bearing any of

Company's Marks shall be used or sold in or upon the premises of any

System Restaurant unless the same shall have been first submitted to

and approved in writing by Company.

 

        B.  So long as this Agreement is in effect, Operator shall

become and remain a member of the Pizza Hut National Purchasing Coop,

Inc. or its successors (the "Purchasing Coop"), and abide by its

Certificate of Incorporation and Bylaws as in effect from time to

time, including without limitation the provisions of Section 2.6 of

the Bylaws concerning purchase commitments.  A copy of the current

Section 2.6 of the Bylaws is attached hereto as Schedule A. 

Operator's obligation to become and remain a member of the Purchasing

Coop shall terminate upon dissolution of the Purchasing Coop, or if an

agreement is reached between Company and IPHFHA to delete from this

Agreement the requirement that Operator become and remain a member of

the Purchasing Coop.

 

 

                             ARTICLE IX.

 

FRANCHISE FEES; DEVELOPMENT SCHEDULE

 

        A.  In consideration of the issuance of the franchise granted

herein, Operator shall pay to Company:

 

        1.  Prior to the opening of each System Restaurant (other than

a New Concept as set forth in Article I.D.2. an initial franchise fee

in the amount of Fifteen Thousand Dollars ($15,000); provided,

however, that the initial franchise fee for a New Concept which is

also a Multi-Brand Concept shall be as set forth in the applicable

YUM! Brands Multi-Brands License Agreement.  For purposes of this

Article IX.A.1., a rebuild of an existing System Restaurant at the

same location, or a relocation of an existing System Restaurant to a

location that serves substantially the same trade area, shall not

create an obligation by Operator to pay an initial franchise fee

pursuant to this Article IX.A.1.; and

 

        2.  A monthly service fee ("Service Fee") of four percent (4%)

per month of the previous month's gross sales (as defined in Article

X.) for each of Operator's System Restaurants, except that with

respect to Delivery Restaurants and Delco Restaurants, the Service Fee

rate shall be (i) four and one-half percent (4-1/2%) as of January 1,

2010, with respect to gross sales accruing on or after that date, (ii)

four and three-fourths percent (4-3/4%) as of January 1, 2020, with

respect to gross sales accruing on or after that date, and (iii) five

percent (5%) as of January 1, 2030, with respect to gross sales

accruing on or after that date. If by reason of state law Company is

prohibited from receiving a percentage of alcoholic beverage sales,

Operator shall pay Company an equivalent amount not to exceed one-half

percentage point more than the applicable Service Fee rate for gross

food and nonalcoholic beverage sales.

 

        3.  The monthly Service Fee shall be payable within twenty (20)

days after the end of each and every month. In addition to any other

remedies Company may have, Operator shall pay to Company a late charge

at a rate established by Company, not to exceed the maximum rate

permitted by law, on all delinquent fees required to be paid Company

by Operator pursuant to this Agreement. Such late charge shall

commence on the first day of the month following the month in which

such fees are due.

 

        B.  Operator shall provide "adequate delivery service", as

defined below.  As used in this Article IX.B., "adequate delivery

service" means in accordance with Company's then-current standards for

delivery. In making a determination of the adequacy of Operator's

delivery services,  Company shall take into account criteria including

potential sales volume, market demographics, saturation analysis,

diversion of sales from Operator's other System Restaurants, and

physical and geographic characteristics of areas in the Territory. If

Company preliminarily determines that Operator is failing to provide

adequate delivery service in all or part of the Territory, Company

shall first notify Operator in writing setting forth the specific

household area where the failure of adequate delivery service is

occurring and the suggested remedial action (a "Delivery Service

Development Plan"). Operator may, within 90 days, submit a written

protest to Company that identifies the geographic boundaries of the

area to which Operator contends it is providing adequate delivery

service. If Operator fails to timely submit a written protest,

Company's preliminary determination shall become effective

immediately. Company will consider any written protest timely

submitted by Operator, but Company shall in its sole discretion make

the final determination of whether Operator is providing adequate

delivery service and, if not, the area in which adequate delivery

service is not being provided. Unless Company determines that its

proposed Delivery Service Development Plan should be modified,

Operator shall implement the Delivery Service Development Plan in

accordance with the provisions of a Development Plan, reference below;

provided, however, Operator must at a minimum develop no less than one

(1) Delco Restaurant or one (1) Delivery Restaurant per year or 20% of

the Delivery Service Development Plan per year, whichever is greater. 

Failure to adhere to the Delivery Service Development Plan shall be

deemed a Development Default, but only in the market in which

Operator's failure to provide adequate delivery service occurred, and

Operator shall not lose or otherwise forfeit its development rights in

any other market as a result of such Development Default.

Notwithstanding the foregoing, Operator shall cure any failure to

provide adequate delivery service where an existing System Restaurant

is capable of curing the deficiency within twelve (12) months of

receipt of the Delivery Service Development Plan.

 

        C.  1.  Company may mandate the implementation of Express

Restaurants within the Territory. At the time of the mandate, Company

will notify Operator of Company's projection of the potential number

of Express Restaurants within the Territory. If Operator desires to

implement the Express concept, Operator must submit to Company, within

thirty (30) days after Company's mandate, Operator's proposed five

(5)-year schedule for development of Express Restaurants in the

Territory (the "Express Development Schedule"). In producing the

Express Development Schedule, Operator shall take into account

criteria including potential sales volume, market demographics,

saturation analysis, diversion of sales from Operator's other System

Restaurants, and physical and geographical characteristics of the

Territory. Within thirty (30) days thereafter, Company shall either

accept the Express Development Schedule proposed by Operator, or

reject it and counterpropose a different Express Development Schedule

(taking into account the factors listed above). Operator shall have

fifteen (15) days from the date Company counterproposes its own

Express Development Schedule within which to elect in writing to

undertake development of Express Restaurants according to the terms of

Company's counterproposal Express Development Schedule. If Operator

fails to make that election or fails to meet the Express Development

Schedule, Company shall have the right to establish and operate, or to

license others to establish and operate, Express Restaurants anywhere

within the Territory, including within a two (2)-mile radius of any of

Operator's then-existing System Restaurants.

 

        2.  If at any time Company deems it practicable to establish

within the Territory additional locations for System Restaurants in

the same System Restaurant Concept (including, for this purpose, a New

Concept released to the System pursuant to Article I.D.), Company will

notify Operator in writing and will invite Operator to propose a

development schedule. If Operator desires to continue to develop that

System Restaurant Concept within the Territory, Operator must submit

to Company, within thirty (30) days after Company's notice, Operator's

proposed five (5)-year development schedule. Within thirty (30) days

thereafter, Company shall either accept the development schedule

proposed by Operator, or counterpropose a different five (5)-year

development schedule. Operator shall have fifteen (15) days from the

date Company accepts Operator's proposed development schedule or

counterproposes its own development schedule within which to elect in

writing to undertake development of additional restaurants according

to the terms of the development schedule. In the event Operator fails

to make that election or fails to comply with the development

schedule, then Company shall have the right, notwithstanding any other

provision of this Agreement, to operate and/or license others to

operate System Restaurants within the System Restaurant Concept with

respect to which the failure occurred within the Territory. Company

will not establish nor will it permit any licensee to establish a

Pizza Hut Restaurant within a two (2)-mile radius of any then-existing

Pizza Hut Restaurant of Operator. Company or its licensee may,

however, establish and operate Delivery and Express Restaurants

anywhere within the Territory, and Company (but not its licensee) may

establish and operate Delco Restaurants outside a five hundred (500)-

yard radius of any of Operator's then-existing Pizza Hut Restaurants,

including (in each case) within a two (2)-mile radius of any of

Operator's then-existing System Restaurants. If Company establishes a

Delco Restaurant less than two (2) miles from one of Operator's then-

existing Pizza Hut Restaurants, Company may not transfer that Delco

Restaurant to a third person within thirty-six (36) months after the

opening of the Delco Restaurant. After thirty-six (36) months, Company

may license the Delco Restaurant to another only if Company first

offers to Operator (if Operator is in good standing as defined in

Article I.D.3) the right of first refusal, for thirty (30) days, to

acquire the assets of the outlet at the price and terms offered by the

third party (or the cash equivalent of noncash consideration offered

by the third party) together with the right to operate it pursuant to

this Agreement. These rights of Company shall be in addition to any

other rights or remedies Company may have.

 

        3.  All new System Restaurants shall be constructed and

operated pursuant to the then-current standards, plans, and

specifications referred to in Article V. B. Operator shall

continuously operate all of its System Restaurants during the term of

this Agreement.

 

        4.  Failure of Operator to comply with the development

schedules arising pursuant to, and obligations set forth in, Article

IX.C.1. or Article IX.C.2. (a "Development Default") shall constitute

a default under this Agreement. If said Development Default occurs,

any franchise rights of Operator to establish additional System

Restaurants in the Territory to operate the same System Restaurant

Concept as that in which the Development Default occurred, not under

construction at the time of default, shall terminate upon Company's

election. Said Development Default shall not, however, affect in any

way Operator's rights and obligations with respect to its System

Restaurants already operating or under construction at the time of

default, or its right to develop System Restaurants in any other

System Restaurant Concept. 

 

        5.  In the event of a Development Default, Company shall have

the right, notwithstanding any other provision in this Agreement, to

operate and/or to license others to operate, within the Territory,

System Restaurants within the System Restaurant Concept with respect

to which the Development Default occurred. Nevertheless, in the event

of such a Development Default, Company will not establish, nor will it

permit any licensee to establish, a Pizza Hut Restaurant at a location

within a two (2)-mile radius of any then-existing Pizza Hut Restaurant

of Operator, except that Company or its licensee may establish and

operate Delivery Restaurants anywhere within the Territory, and

Company (but not its licensee) may establish and operate Delco

Restaurants outside a 500-yard radius of any of Operator's then-

existing Pizza Hut Restaurants, including (in each case) within a two

(2)-mile radius of any of Operator's then-existing System Restaurants.

These rights of Company shall be in addition to any other rights or

remedies Company may have. If Company establishes a Delco Restaurant

less than two (2) miles from one of Operator's then-existing Pizza Hut

Restaurants, Company may not transfer that Delco Restaurant to a third

person within thirty-six (36) months after the opening of the Delco

Restaurant. After thirty-six (36) months, Company may license the

Delco Restaurant to a third person but only if Company first offers to

Operator (if Operator is in good standing as defined in Article

I.D.3.) the right of first refusal, for thirty (30) days,